Foreclosure Blog

How to Negotiate with Creditors to Reduce Monthly Bills and Debts

When a personal financial crisis occurs, most people immediately begin to worry about how they are going to keep paying their bills at the current minimum monthly payments. Few people seriously consider negotiating with their creditors until they are already several months behind or their accounts are in collections or worse. But as soon as someone faces a financial hardship, it is a good idea to begin negotiating for lower monthly payments and bulk sum settlements before it gets to the point of repossession, foreclosure, or bankruptcy.

Consumers need to know how much they can afford on their monthly bills after their financial circumstances have dramatically changed. In effect, they need to establish their bottom line for paying off their creditors, especially unsecured debts like credit cards. For example, if the family can reasonably pay $1,000 of a $1,500 original debt, then they should not agree to pay any more when they are negotiating. They can try to bargain the creditor to accept $800, for instance, but should not agree to pay more than their bottom line.

Negotiations seem to be progressing well here.

They also need to know where the creditors bottom line is when negotiating. Especially if an account has been charged off and sent to a collection agency, the minimum they will accept may be quite low. The debt collectors will not immediately offer the lowest settlement, of course, but it is good to keep asking for better deals. In the case of a loan modification, asking to lower the interest rate an extra quarter percentage or keep a forbearance plan in place for an extra three months may be reasonable requests.

It is also important to keep in mind that all parties in a negotiation will attempt to get the upper hand. Creditors will exaggerate the financial consequences of being late, threatening potential repossession and foreclosure, along with all of the negative credit history. This is all in an attempt to make the debtors pay more. On the other hand, debtors should explain their financial hardships in as bleak of an outlook as possible, mentioning potential bankruptcy proceedings if a deal if not worked out. Obviously, it is not a good idea to lie about one’s finances to creditors.

Finally, some creditors may accept a lump sum payment of a debt. For large loans like a mortgage or car, this may be impossible for most debtors, but small loans and bills may be paid off and canceled. These can include personal loans from a bank, credit cards, store cards, and more. If they can be negotiated down and paid off, it may free up some much-needed monthly income that can go towards keeping the lights on and making sure the mortgage is paid on time to avoid foreclosure. Eliminating any small bills and avoiding collection agencies is almost always a net positive for consumers.

When a financial crisis occurs, creditors usually have very few good options. They can accept lower monthly payments, a small lump sum payoff, or wait for the consumers to file bankruptcy or just stop paying altogether. In such cases, they may be more willing to accept a negotiated payment plan or settlement offer that works out in all of the parties’ interests. And with more people than ever out of work or underemployed, creditors may be more open to taking what they can get, rather than holding out for more and ending up with nothing.